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The B.C. Employer Health Tax (hereafter referred to as the “Tax”), comes into effect on January 1, 2019. The Tax applies to ALL employers (including charitable and non-profit employers) who have a permanent establishment in B.C in a calendar year.
All employers with B.C. remunerations greater than $500,000 (the exemption amount) must register for the Tax. The provincial government has defined employers to include individuals, corporations, partnerships, trusts or a government.
The Tax is calculated based on the remunerations an employer pays to their employees. The remunerations are inclusive of all payments, benefits and allowances that must be included in the income of an employee under Sections 5, 6 or 7 of the ITA (e.g., salary and wages, bonuses, commissions, gratuities, taxable allowances, directors’ fees, stock option benefits, etc.).
The Tax only applies to employers with B.C. remunerations. This includes:
- all remunerations paid to the employer’s employees who report for work at the employer’s permanent establishment in B.C., and
- all remunerations paid to the employer’s employees who do not report for work at a permanent establishment of the employer, but are paid from or through a permanent establishment in B.C.
Remunerations paid to employees who report for work at a permanent establishment of the employer outside of B.C. for all or substantially all of the calendar year, are not considered B.C. remunerations.
There are three thresholds to determine the amount of Tax to be paid by the employer. If the B.C. remuneration amount is:
- equal or less than $500,000 (the exemption amount) – no Tax payment required;
- between $500,000.01 to $1,500,000 – the employer will pay the Tax at 2.925% on amounts over the exemption amount of $500,000;
- greater than $1,500,000 – the employer will pay the Tax at 1.95% on the total B.C. remuneration.
If an employer is associated with other employers, all associated parties must share the exemption. A prorated exemption will be applied if an employer begins or ceases the B.C. permanent establishment during a calendar year.
For charitable and non-profit organizations (excluding organizations within the government reporting entity), the Tax to be paid by the employer must meet slightly different criteria. The Tax on B.C. remunerations is calculated for each of the organizations qualifying locations separately. If the B.C. remuneration for each qualifying location is:
- equal or less than $1,500,000 (the exemption amount) – no Tax payment required;
- between $1,500,000.01 to $4,500,000 – the employer will pay the Tax at 2.925% on amounts over the exemption amount of $1,500,000;
- greater than $4,500,000 – the employer will pay the Tax at 1.95% on the total B.C. remuneration.
Employers who are associated with a charitable or non-profit employer are not required to share the exemption with the charitable or non-profit employer.
As noted above, if an employer is associated with other employers, all associated parties must share the $500,000 exemption. The Tax applies to section 256 of the ITA, with modifications, to determine whether or not employers are associated. Unlike the association rules under the ITA, the employers cannot elect out of the association rules.
The association rules, specific to the Tax, are extended to include individuals, partnerships and trusts. For purposes of the associated employer's rules, individuals, partnerships and trusts are considered to be corporations with one class of voting shares. To determine ownership of those shares:
- sole proprietor – the individual proprietor owns all the shares of the corporation;
- partnership – each partner owns shares in the same proportion in which they share the income or loss of the partnership;
- trust – each beneficiary of the trust owns shares in the same proportion in which they share the income or loss of the trust.
If a group of employers are associated at December 31, the group must enter into an agreement to share the exemption amount for the calendar year-end.
Tax filing and payment
The Tax return is due on March 31, 2020, and will be due on March 31 for the following calendar years. The return must be filed via eTaxBC electronically. Payment can be made through a bank or financial institution via:
- electronic funds transfer
- bill payment service
- wire transfer
Quarterly instalments are required if the total Tax amount exceeded $2,925 from the previous year. Instalments are calculated as the lesser of 25% of the previous year’s Tax or 25% of the current year’s estimated Tax.
Note – instalment payments are required for the 2019 calendar year. The previous year’s Tax is considered the amount of Tax that would have been payable if the Tax were in force on January 1, 2018.
Instalment due dates are as follows:
- June 15
- September 15
- December 15
- March 15 with the remaining Tax payable.
As returns must be filed electronically, employers need to have an eTaxBC account and register for the employer health tax account. The employer health tax account registration begins on January 7, 2019, and must be registered by May 15, 2019.
For more information on the new BC Government Employer Health Tax (EHT), please contact a member of the Manning Elliott Tax Team
This content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.